Australia, Japan make history by moving on from it

East Asia Forum - Thu, 07/31/2014 - 17:00

Author: Christopher Pokarier, Waseda University

For 60 years Australian governments in their dealings with Japan have chosen to make history rather than be bound by it. This was never politically easy and many Australians continue to be disappointed by reports of influential Japanese who appear to sanitise Japan’s wartime record. Australian soldiers and civilians who fell prisoner to Japanese forces suffered brutal treatment, as did other allied forces and many peoples of East Asia.

Although many more Australians have died on foreign battlefields, the humiliation, deprivations and atrocities suffered in Japanese captivity arguably represent the greatest tragedy to befall Australians since the mistreatment of indigenous peoples by European settlers. It was a deep wound in the national psyche which did not heal with the allied victory and subsequent war crimes trials. Japan’s southern advance in World War II had been experienced by all Australians as an existential threat to the fledging nation then marking only its fortieth anniversary of national federation.

So it was no small matter for Australia to host a visit by the then Japanese prime minister, Nobusuke Kishi, in 1957 and to enter into a treaty of commerce that would lay the foundations for the normalisation of economic relations between the two nations. Kishi — who served Hideki Tojo’s wartime government as minister of munitions and was imprisoned for three years as a Class A war crimes suspect — was a contentious figure at home and abroad. It is poignant then that Kishi’s grandson, Shinzo Abe, should be the first Japanese prime minister to address the Australian parliament.

In welcoming Abe to the Australian Parliament, Australian prime minister Tony Abbott pointedly noted that Abe had paid his respects at the Australian War Memorial, as his grandfather had done.Australian reactions to Abe’s speech were generally very favourable. His explicit reference to Sandakan, a place name indelibly associated with the worst atrocity committed against Australian POWs, was a potent symbolic gesture. Noting the loss of many young Australians with bright futures, and the trauma of survivors, Abe said he could find no words to say and could ‘only stay humble against the evils and horrors of history’. This could readily be critiqued as a narrative cop-out that bore no direct recognition of Japanese agency in the tragedy. Yet, three generations on, finding the right words for a Japanese leader to deliver, and in English, is no easy task.

Abe did not apologise, but this prompted little criticism. Australian politicians have long since foresworn the politics of apology extraction in relation to Japan. Speaking the name Sandakan was enough for most of the Australian audience.

What Australian criticism there was targeted the comments the Australian Prime Minister made in prefacing Abe’s address. Abbott spoke of how the Japanese submariners killed in the daring 1942 attack on Sydney Harbour had been buried with full military honours, saying that even at the time Australians ‘admired the skill and the sense of honour that they brought to their task although we disagreed with what they did’.

One critic faulted Abbott’s ‘oddly diluted’ language given the threat that Australians had felt in the face of imperialist aggression. Less convincingly, Sydney University’s Kerry Brown concluded that Abbott’s remarks represented a mistaken intrusion on a dispute between Japan and China over matters of war memory.

Elements of the Chinese media decontexualised Abbott’s remarks and responded with vociferous criticism — expressing indignation at the warm welcome being shown to Abe.

But such reactions deny Australia ownership of its own collective memories of Japan’s militaristic past and its right to judge Japan’s past and present conduct.

China and South Korea do not have a duopoly on victimhood. Although China and South Korea suffered at the hands of Japanese forces on a much larger scale, and for a lot longer, that is of no consolation to the many Australians who were also victims of Japan seven decades ago. This is not a competitive tournament of past victimhood. Australians are right to feel indignant at the trivialising of their history of suffering.

While Australia has never shied away from an open discussion of Japan’s wartime past, it has not held it against Japan either. This, in turn, has made it much easier for Japanese leaders and diplomats to make public gestures of atonement in Australia. And there have been many over the years.

The Australian government is well informed, through an effective diplomatic presence in Tokyo, of Abe’s bind on the politics of memory. We may hope that Abbott’s referencing of the Japanese submariners, and the mirroring in Abe’s speech, was a cue to a less problematic war remembrance by the Japanese leader. It was a gesture of separating personal sacrifice from state mission, and an authentic narrative about private and state actions aimed at making a better history from a sad one.

Abe may yet draw the wrong lessons from Australia’s goodwill on history matters and simply wait for the Chinese and South Koreans to be more accommodating. Australia should more proactively present to Japan its own painful coming to terms with the history of dispossession of Australia’s indigenous peoples.

We make history both by forgiving the wrongs of others, and by confronting the truth of our own.

Christopher Pokarier is Professor of Business and Governance at the School of International Liberal Studies, Waseda University.

Categories: Forum

Aquino’s reform narrative falters

East Asia Forum - Thu, 07/31/2014 - 05:00

Author: Julio C. Teehankee, De La Salle University, Manila

Three members of the Philippine Senate have been arrested on charges of plunder for allegedly diverting part of their legislative pork barrel, formally known as the Priority Development Assistance Fund (PDAF), into fake NGOs. At first glance, the filing of plunder charges against veteran politico Juan Ponce Enrile and actors-turned-politicians Jose Ejercito Estrada and Ramon Revilla Jr might be seen as a slam dunk for the anti-corruption efforts of President Benigno Aquino III.

In 2011, President Aquino successfully pushed for the impeachment and prosecution of then-Supreme Court chief justice Renato Corona for failing to legally disclose his assets and liabilities. Ironically, as Senate president, Enrile presided over the impeachment trial that declared Corona guilty. But Enrile’s ally Senator Estrada, the son of convicted plunderer and ousted president Joseph Estrada, managed to turn the tables against President Aquino by accusing him of using his own presidential pork-barrelling program, the Disbursement Acceleration Program (DAP), to bribe congressmen and senators to convict Corona.

Suddenly, the Aquino administration found itself on the defensive when the Supreme Court unanimously found the DAP unconstitutional. In a nationally broadcast address, President Aquino lashed out against the decision. Meanwhile, his allies in the House of Representatives threatened to abolish the Supreme Court’s own pork-barrel fund, the Judicial Development Fund (JDF). Critics of the president from the left and right have filed a series of impeachment complaints. Close to three decades since the Marcos dictatorship was ousted, the promise of good governance continues to elude the oldest democracy in the Southeast Asian region.

As in most developing countries, corruption has been one of the major impediments to development in the Philippines.

Practically all administrations have faced a major corruption scandal. Transparency International reported that Ferdinand Marcos stole a total of between US$5 billion to US$10 billion between 1972 and 1986. In the post-Marcos period, Joseph Estrada is the first Philippine president to be convicted of plunder for pocketing between US$78 million to US$80 million during his three-year presidency. His successor Gloria Macapagal Arroyo is under detention while facing trial also on charges of plunder.

The ongoing controversies over the PDAF and DAP underscore the persistence of two governance problem in the Philippines: institutionalised corruption and political clientelism. Despite efforts to combat and eradicate it at different historical junctures, corruption has continued to permeate national and local politics and governance.

The post-Marcos era opened the floodgates for the democratisation of corruption, allowing well-connected political operators like Janet Lim Napoles to pull off a multi-billion pork-barrel scam for several years through a well-spun web of connections with bureaucrats, legislators and other government functionaries.

But institutionalised corruption is only half of the story.

The other half involves political clientelism. The mobilisation and use of pork barrelling for clientelistic politics is one of the legacies of American colonial tutelage in the Philippines.

Aquino overwhelmingly won the 2010 presidential elections with his good governance and reformist narrative of ‘no corruption, no poverty’. However, the inability to rein in the twin problems of institutionalised corruption and political clientelism has limited his ability to put a dent in the bigger problem of poverty in the country. Worse, his perceived moblisation of clientelistic tactics, such as pork barrel politics to push for his anti-corruption agenda, has exposed the limits of his good governance rhetoric. Recently, the Supreme Court banned the use of pork-barrel funds.

Aquino’s ruling Liberal Party faces a dilemma of balancing power and principle: even if it’s a party of principle, without power it will not be able to realise its principles. But, if it focuses too much on power, it might end up losing its principles. The disconnect between Aquino’s reformist narrative and the current PDAF and DAP controversies has taken a toll on his once sky-high popularity ratings. The president found himself caught in a narrative trap where his governing script diverged dramatically from his campaign narrative.

President Aquino should take the current controversies as an opportunity to retell the narrative that earned him the people’s trust. In an emotion-filled State of the Nation Address this week, Aquino evoked the sacrifices of his parents — the martyred senator Benigno S. Aquino Jr and former president Corazon C. Aquino — in an attempt to relaunch his narrative.

But in order to salvage the remaining two years of his administration, he should focus his energies on delivering on the long-delayed promise of political reforms by passing pending bills on freedom of information, party development and the banning of political dynasties. He should also push for a new social reform agenda that will lay the grounds for more inclusive economic development.

His presidential legacy is on the line.

Julio C. Teehankee is Dean of the College of Liberal Arts at De La Salle University, Manila.

Categories: Forum

BRICS lay a foundation but will there be concrete action?

East Asia Forum - Wed, 07/30/2014 - 17:00

Author: Maria Theresa Anna Robles, RSIS

Unsurprisingly, the BRICS countries sixth annual summit in Brazil once again polarised public opinion. When the proposal for a BRICS development bank and currency swap arrangement was put forward in March 2012, the reaction was already divided. Some believed — including ‘rival’ international financial institutions (IFIs) such as the World Bank and the International Monetary Fund (IMF) — that there is room for such an institution to help meet developing countries’ massive investment needs. Others felt that, given the considerable economic and political differences, the feasibility of concerted action from the BRICS is limited.

Yet the leaders of Brazil, Russia, India, China and South Africa managed to agree on key features of the so-called ‘New Development Bank’ and the BRICS Contingency Reserve Agreement. Does this mean that critics were wrong to dismiss the BRICS as an ‘artificial bloc founded on a Goldman Sachs’ catchphrase’? Is this the first real step towards the long-awaited reshaping of the global financial architecture?

That an agreement was reached is impressive. But those who are pinning their hopes on a BRICS-led overhaul of global IFIs should not hold their breath. Fundamental issues persist and these will limit the BRICS’ ability to match ambitions with concrete action.

The New Development Bank will provide funding for infrastructure and sustainable projects in the founding members’ countries, as well as other emerging and developing economies. The initial authorised capital and subscribed capital is US$100 billion and US$50 billion, respectively. Brazil and India prevailed in ensuring that the subscribed capital will be divided equally among the five founders, thus limiting China’s power to assert greater influence over the bank.

Major points of contention on the bank’s leadership and location kept negotiations between India and China going until right before the launch. Finally, an agreement was reached that the headquarters will be located in Shanghai, while the first president will be from India. Brazil is to provide the bank’s first chair of the board of directors, and the first chair of the board of governors will be from Russia. South Africa will host the bank’s first regional centre.

The current set up of the BRICS Contingency Reserve Agreement is reminiscent of the Chiang Mai Initiative’s early form. It is a framework for financial support in response to actual or potential short-term balance of payment pressures. Total committed resources amount to US$100 billion with China contributing 41 per cent, South Africa five per cent, and the rest bringing in 18 per cent each. The BRICS Contingency Reserve Agreement does not constitute a common pool of funds; instead, funds will only be released for eligible requests. Most decisions regarding governance and operations will be done through consensus, yet approving requests for support will be decided by the majority based on weighted voting. Thirty per cent of the maximum access to funds is subject to approval by the members; the rest will remain tied to the IMF.

While the agreements are substantial, the hard part is yet to come. Scheduled to start lending in 2016, the New Development Bank has the potential to make an important contribution to addressing the global shortfall in infrastructure investment — estimated at around US$1–1.5 trillion per annum. But, if China’s influence is contained by keeping the share of subscribed capital equally distributed, this will drastically limit the bank’s lending capacity in the coming years.

While funding availability is one part of the problem, the availability of viable infrastructure projects is another. The BRICS would have to agree on criteria for project eligibility and cooperate on social, environmental and governance standards. If the founding members fail to reach an agreement, there is a plethora of existing and emerging development banks which focus on infrastructure investment. Latin America and Brazil both already have their own development banks. China has also started preliminary discussions on the Asian Infrastructure Investment Bank.

It is still not clear how (or whether) the BRICS New Development Bank will relate to these institutions. Regardless, the surfeit of alternatives suggests that there would be minimal pressure for the BRICS to cooperate on contentious issues.

There is no reason to believe that the BRICS New Development Bank and Contingency Reserve Arrangement will challenge the dominance of the World Bank and the IMF, or increase emerging powers’ influence in global financial architecture reform. The relative importance of World Bank lending in infrastructure may have recently declined but it is still the leading funder for poverty reduction. Despite rapid growth, both China and India still struggle with poverty reduction and are involved in lending programs with the World Bank.

It is already clear that the Contingency Reserve Arrangement will have substantial ties with the IMF. It is also likely to encounter the same challenges of surveillance and institutional capacity that ASEAN faces with the Chiang Mai Initiative Multilateralization and the ASEAN+3 Macroeconomic Research Office. With BRICS-led reform limited by these factors, progress in reshaping the global financial architecture ultimately hinges on the implementation of the IMF’s 2010 Governance and Quota Reform, on which the final push will come from the US Congress, not pressure from the BRICS.

The Fortaleza BRICS summit served a different purpose: it gave each member a platform to declare individual achievements not related to global financial governance — it was a platform for Modi’s first diplomatic success as prime minister and an opportunity for Putin to demonstrate that he still has allies despite growing tensions with Western powers. Reform of the global financial architecture is long overdue but it is unlikely that the BRICS countries will be its main drivers.

Maria Theresa Anna Robles is an Associate Research Fellow at the Centre for Multilateralism Studies (CMS) at the S. Rajaratnam School of International Studies, Nanyang Technological University.

Categories: Forum

Oil rig out, but still no happy ending

East Asia Forum - Wed, 07/30/2014 - 05:00

Author: Tung Nguyen, Diplomatic Academy of Vietnam

On 15 July, the Haiyang Shiyou 981 oil rig was removed from Vietnam’s claimed EEZ in the South China Sea. But this might not be the happy ending it appears to be. The way the crisis began and ended suggests that similar incidents will occur. The Chinese decision to place the rig in the area was unilateral. So was the decision to pull it out. It was made in the absence of an agreed solution between China and Vietnam and was accompanied by a claim touting the ‘success’ of the drilling operation, which occurred ‘well within China’s sovereignty’, according to China’s Ministry of Foreign Affairs spokesperson Hong Lei.

Hong said that ‘companies concerned will map out [a] work plan for the next step based on analysis and assessment of the geological data that they have obtained’. China did not build the rig with the intention of leaving it idle, so it is highly likely that it will be deployed in the area again.

In addition, China has found the deployment of the rig a useful way of asserting its territorial claim. In late 2013, the two countries’ leaders reached an agreement on principles of peaceful management of the disputes in the South China Sea. The introduction of the oil rig, escorted by a flotilla of high-powered vessels — some of them armed — that rammed and used water cannons in the disputed zone, changed this. The show of force was unprecedented, but has become an accepted new norm for China, suggesting that this kind of incident will happen again.

There are other aspects of this situation that seem to indicate that China will be taking a more assertive posture in the future. One of these concerns the way that China has sought to deal with the crisis publicly. On 9 June, China introduced a position paper on the dispute to the United Nations Secretary General and asked that the paper be circulated among UN member states. In addition, several Chinese ambassadors have published op-eds in local newspapers, trying to make a case for the China’s actions at sea.

For the first time, China has departed from its usual approach of keeping territorial disputes with Vietnam in the South China Sea low key. China is now trying to turn international public opinion in its favour by providing its version of the facts and its interpretation of the history of the dispute. It is likely that such tactics will be used in the future.

And lastly, China has openly clarified its claim over the Paracels (known as Hoang Sa in Vietnam). The position paper of 9 June argues that there is a basis under the UN Convention on the Law of the Sea (UNCLOS) for such a claim by stating that:

The waters between China’s Xisha (Paracel) Islands and the coast of Vietnamese mainland are yet to be delimited. The two sides have not yet conducted delimitation of the Exclusive Economic Zone and continental shelf in these waters. Both sides are entitled to claim EEZ and continental shelf in accordance with the UNCLOS. However, these waters will never become Vietnam’s EEZ and continental shelf no matter which principle (on international law) is applied in the delimitation.

This leaves open the possibility that China might claim a 200-nautical-mile EEZ for the Paracels. And if China presses such a claim, then the rig could potentially be deployed in a much wider area.

The crisis ended with the implicit promise that the oil rig would return when China wanted it to and on its terms. This augurs badly. But this might allow breathing room for China and Vietnam, together with the international and regional communities, to work on plans to resolve these sovereignty issues peacefully. The upcoming bilateral discussions, especially at the ASEAN Regional Forum in August and the ASEAN Summit in November, at which China will participate, are the most important venues for such an undertaking.

Tung Nguyen is a Senior Researcher and member of the research program on the South China Sea (East Sea) at the Diplomatic Academy of Vietnam.

The views expressed in this article are the author’s own.

Categories: Forum

Australia, Japan take a ‘domino approach’ to regional integration

East Asia Forum - Tue, 07/29/2014 - 17:00

Author: Takashi Terada, Doshisha University

The recently signed Australia–Japan economic partnership agreement (EPA) is an example of the dynamic domino effect of regional trade and investment. This is where the benefits an FTA brings to one country, such as eliminating tariffs, generally disadvantages a third country not included in the agreement. This third party is thereby pressured to engage in seeking FTAs of their own. Australia’s regional integration strategy has adjusted itself well to this environment — in which big economies, each with different rules and ambitions, struggle with each other for trade advantages.

For Australia, Japan’s concession on some key agricultural products, such as beef, is particularly important. Under the deal, Japan’s frozen beef tariff will fall from 38.5 to 30.5 per cent in the first year, before being reduced to 19.5 per cent over the following 18 years. The tariff on refrigerated beef will also be reduced to 32.5 and 23.5 per cent in the first and second year, respectively.

This is the first time that Japan has preferentially reduced its tariff on beef.

The move was hailed as an unexpectedly good result by Australia’s Minister for Trade and Investment Andrew Robb. But sugar liberalisation — which invited a backlash from Australian industry organisations when it was excluded from the US–Australia FTA — was again excluded. In Japan sugar is produced by small-scale farmers in Hokkaido and Okinawa, where the unemployment rate is relatively high.

But, with tariffs on both sugar and wheat being immediately removed by the South Korea–Australia FTA, signed in April, the discontent of the Australian sugar industry has been substantially mitigated. So, when considering the combined effects of the FTAs with Japan and South Korea, Australia’s trade policy tactics — at least domestically — have been a success.

The wider effects of Australia’s FTA tactics can also be observed in the US–Japan market access negotiations under the TPP. The Japan–Australia EPA attracted significant attention in Japan primarily due to expectations that a preemptive deal with Australia would lead to a US compromise on beef tariffs, which the US has demanded Japan substantially reduce.

The United States has a 35 per cent share of the Japanese beef market, while Australia maintains 54 per cent. But, if only Australian beef enjoys a lower tariff — as under the EPA with Japan — American beef will be at a disadvantage and the difference in market share would increase. It was thought that this would motivate the United States to quickly compromise on its tariff reduction demands on beef and other agricultural products, to Japan’s advantage in the negotiations. Even if TPP negotiations were concluded quickly, it would take a long time for all countries involved to ratify and implement the agreement. So, members of the American beef industry began to prepare for a disadvantage that would last several years.

But, with the mid-term elections looming and interest groups to appease, the Obama administration instead demanded a five per cent tariff on beef, much lower than what Japan promised to offer Australia. A bigger cut over a shorter timeframe was presumably needed to get concessions from the US during the bilateral market access negotiations. Yet Japan has continued to use negotiation tactics by offering other TPP members, such as New Zealand, a limited level of agricultural liberalisation.

Australia also had an eye to the TPP while working up to the agreement with Japan. As indicated by Andrew Robb’s statement that ‘our competitors are not Japan’s producers, they’re producers from other countries’, Australia believed, with a quickly negotiated deal with Japan, it could gain an advantage in Japan’s agricultural market over other TPP participating countries, including the United States and New Zealand.

Presently 11 per cent of Australia’s agricultural products are exported to Japan, which is also its largest export market for beef and cheese. Importantly, a most-favoured-nation clause for beef and dairy products in the EPA means that if tariffs for these are brought down even further within the TPP, they are guaranteed to apply to Australian products, too. In this negotiation game, the United States has, in effect, become Australia’s proxy negotiator, as US–Japan negotiations will always benefit Australian beef and dairy products.

In this way, FTAs can set off a political game — like dominoes — where deals cannot be ended with a single agreement due to the exclusive nature of FTA benefits. It is this political game that also led Australia to quickly conclude the South Korea–Australia FTA. At that point Australia had already suffered two years of harm due to the South Korea–US FTA. Equally, Australia is Japan’s second-largest automobile market, thus the removal of tariffs on South Korean automobiles under the Australia–South Korea FTA was one of the key drivers pushing Japan to quickly conclude the Australian EPA.

The only major Northeast Asian player left in Australia’s FTA game is now China, which accounts for as much as 35 per cent of Australia’s total exports. The Sino–Australian trade negotiations will surely catalyse another round of domino politics in regional integration. The question that remains is: who else may strike preemptively to minimise their own disadvantage under a Sino–Australian FTA?

Takashi Terada is Professor of International Relations at Doshisha University and was previously Japan Scholar at the Woodrow Wilson International Center for Scholars and a Professor at Waseda University.

A longer version of this article was first published here in USJI Voice.

Categories: Forum

What happens in China, doesn’t stay in China

East Asia Forum - Tue, 07/29/2014 - 05:00

Author: Yizhe Daniel Xie, Waseda University

The experience that Chinese leaders gain in domestic politics has a big impact on how they view and handle international issues. Many China watchers and political analysts often overlook these domestic roots of Chinese foreign policy, particularly in China’s push to reform the international financial system.

The announcement of the establishment of a BRICS Development Bank on 15 July, at the sixth BRICS summit in Brazil, represents an important victory in China’s campaign to reform the world’s financial system and acquire more influence in international institutions. This success comes on the back of persistent Chinese pressure on the West, following the global financial crisis, to allow emerging economies to have a bigger presence in the financial system.

However, analysts are mistaken to frame this quest for greater influence as purely a function of Chinese foreign policy interests. In effect, both the BRICS Development Bank and the broader strategy it complements are rooted in the domestic concerns of reform-minded leaders of the Chinese Communist Party.

Despite its centralised political system, China’s economic reforms were never an easy process and reformers usually met severe resistance from vested interests.When fierce resistance by interest groups threatens or defers policy implementation, Chinese leaders adopt a different tack — leveraging power from an external force or simply creating, directly or by proxy, another similar institution to compete with and put pressure on the existing one to press for change. For example, when reform was mooted for state-owned enterprises (SOEs) there was strong intra-party opposition. Then premier Zhu Rongji, a reformist, responded by promoting China’s accession to the World Trade Organization to attract multinational national corporations to China to compete with SOEs. Ultimately, the SOEs had no choice but to acquiesce to reform.

The same phenomenon is at play in China’s attempts to reform the international financial system. As it emerges as the world’s second largest economy, China sees the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB) as no longer reflecting its size and international standing. By partnering with other emerging economies, such as India and Brazil, China actively seeks to demand a commensurate increase in voting rights in the two Bretton Woods institutions (the World Bank and the IMF) at the G20 Summit and other international conferences.

Despite a few amendments, China’s voting share in the World Bank and IMF remains below 5 per cent, which is about a quarter of the US share and only slightly more than half that of Japan.Moreover, in the ADB, the United States and Japan hold the two largest proportions of shares with 12.78 per cent each, while China holds only 5.45 per cent. Chinese frustration is further compounded by the fact that its economy is approximately 1.9 times larger than Japan, which has also handpicked every ADB governor since its inception in 1966.

China became more assertive and less patient in the international arena when Xi Jinping took charge in November 2012. This can be seen in China’s efforts in reshaping the international financial system. Under Xi’s proposed Chinese dream’, China as a major emerging power will no longer passively accept the reform impasse in existing organisations that are dominated by the established economies of the West. That the present system is unlikely to accommodate China was evidenced by the refusal of the US Congress to ratify an IMF reform package.

In response to this situation, and replicating its domestic reform strategy, the Chinese government has worked to set up parallel international institutions to rival the existing Bretton Woods framework and the ADB. To drive this process, President Xi picked Finance Minister Lou Jiwei, who steered the founding of the Chinese sovereign wealth fund, the China Investment Corporation (CIC). The creation of the New Development Bank, and the Contingent Reserve Arrangement, is indicative of this broader strategy and a milestone of Xi’s proactive foreign policy.

It will not be the last.

Lou has indicated clearly that China is committed to creating the Asian Infrastructure Investment Bank (AIIB). The bank is expected to come online with a mandate to challenge the Japan-led Asian Development Bank and thereby craft the Asian financial markets and regional politics in its own image.

That said, China’s motivation to create the BRICS Development Bank and the AIIB is not exclusively aimed at pressing the West and Japan to reform international institutions. China also has substantial interests in spending its oversized US$3.9 trillion in foreign reserves, internationalising the renminbi and securing contracts for its own companies while expanding its political and financial clout. Like many countries, Chinese leaders perceive foreign policy as an extension of their own domestic affairs.

Yizhe Daniel Xie is a graduate student at Graduate School of Asia Pacific Studies, Waseda University in Tokyo and a special correspondent of Yazhou Zhoukan. Previously he worked at Goldman Sachs in Beijing and IBK Securities (Industrial Bank of Korea) in Seoul.

He thanks Tiago Mauricio, a WSD-Handa non-resident fellow at Pacific Forum, CSIS, for his support and comments.  

Categories: Forum

Abe’s aid reform, in the name of peace?

East Asia Forum - Mon, 07/28/2014 - 05:05

Author: Fumitaka Furuoka, University of Malaya

On 26 June 2014, a panel of specialists under Japanese foreign minister Fumio Kishida submitted a report that recommended transforming Japan’s foreign aid policy into a ‘strategic’ diplomatic tool. Based on the panel’s recommendations, Prime Minister Shinzo Abe has begun the process of revising the fundamental guidelines of Japan’s official development assistance (ODA). This process is to be completed before the end of this year.

The basic principles of Japanese aid policy, enshrined in the ODA Charter, were enacted as a cabinet decision in June 1992 under the then prime minister, Kiichi Miyazawa. Reflecting the post-Cold War zeitgeist, the ODA Charter bluntly prohibited the use of foreign aid for military purposes. It also stressed that full attention should be paid to efforts to promote democratisation and to protect human rights and freedoms.

Ten years later, then prime minister Junichiro Koizumi toned down the principles of the ODA Charter in order to quell the criticisms.  The revised ODA Charter stipulated that the use of ODA for military purposes should be avoided and that attention should be paid to efforts to promote human rights and freedoms in developing countries. After the revision of the ODA charter the criticisms diminished. For example, the Japanese government had been repeatedly criticised for providing foreign aid to Myanmar. The revision of the ODA Charter made it easier for the Japanese government to justify the provision of assistance to Myanmar because Yangon was making some efforts to improve human rights condition.

The recent attempts by Prime Minister Abe at reforming Japanese aid policy are more radical and, therefore, more problematic. Abe has proclaimed a policy of ‘proactive pacifism’ with the aim of overhauling Japan’s military policy and ensuring Japan plays a more vigorous role in international politics. As part of this policy Abe has recently introduced three key military reforms.

First, in April 2014, Abe abolished Japan’s self-imposed ban on exporting military weapons. This gave the green light to selling missile components to the United States in July 2014.

Second, in July 2014, Abe reinterpreted the Article 9 ‘peace clause’ of the Japanese constitution via a cabinet decision. The new interpretation allows Japan’s Self-Defense Forces to exercise the right to collective self-defence under limited conditions. Ironically, the traditionally pacifist New Komeito, the coalition partner of the Liberal Democratic Party, played a role in the reinterpretation in order to remain in the coalition government.

Third, Abe has set his sights on nullifying specific principles of Japanese ODA, which would allow Japan to use ODA to support foreign armed forces. So far, the panel of specialists has recommended abolishing the total ban on providing ODA to a foreign military. But the panel has stressed that the provision of foreign aid should be limited only to non-military activities conducted by foreign armed forces, such as disaster relief activities.

Despite this condition, there are legitimate concerns about a loose  definition of ‘non-military activities’. For example, some groups, such as NGOs and media organisations, are concerned about the provision of Japanese aid to foreign militaries to patrol coastal areas or national borders. Due to the lack of a precise definition of ‘non-military’ activities, aid for these purposes could be classified as non-military assistance which could provoke a negative international response. Japanese ODA has faced numerous criticisms from the OECD for not giving aid to countries most in need and instead focusing on countries and regions where Japan has economic interests. Giving ODA for ‘non-military’ assistance could further divert the limited and diminishing foreign aid funds.

The Abe administration is striving to convince other countries, especially its neighbours China and South Korea, that the changes in Japanese ODA policy aim to promote peace through supporting non-military activities.

Japanese foreign minister Fumio Kishida has said that development aid is ‘Japan’s biggest diplomatic tool’. But it is likely that the changes in Japan’s foreign aid policy will be viewed by some as an unwelcome and provocative decision.

Fumitaka Furuoka is a visiting senior research fellow at Asia-Europe Institute, University of Malaya. He is the author of the book New Challenges for Japan’s Official Development Assistance (ODA) Policy: Human Rights, Democracy and Aid Sanctions.


Categories: Forum

Jokowi saves Indonesia’s democracy (and maybe Southeast Asia’s too)

East Asia Forum - Mon, 07/28/2014 - 05:00

Author: Thitinan Pongsudhirak, Chulalongkorn University

Many years from now, the electoral victory of Indonesia’s president-elect Joko Widodo (Jokowi) may be seen as pivotal to the fate of democracy and regionalism in Southeast Asia. A win by Jokowi’s opponent Prabowo Subianto would have been a retrograde step for Indonesia, promising shades of authoritarianism even with a popular mandate. Jokowi’s victory, on the other hand, bodes well not just for Indonesia’s future but also for the region’s democratic prospects and ASEAN’s forward momentum.

Even as societies become more advanced, economically and technologically, when it comes to political development, democracy is not always permanent. While democracy prevailed over authoritarianism and autocracy in the twentieth century, its trajectory remains uncertain.

In Southeast Asia, economies are generally expanding, and societies are becoming more sophisticated, industrialised, globalised and connected. Its forms of government are mixed and diverse, ranging from absolute monarchy to democracies to communist-party rule. But the balance has been tipping in favour of more authoritarianism and less democracy: Thailand’s recent military intervention is a case in point, but Cambodia, Malaysia and Myanmar have exhibited signs of regression.

Much was thus riding on Indonesia, the largest Muslim country and the third largest democracy in the world. Indonesia is a very young democracy that emerged from a period of colonialism and then military authoritarianism.

The contrast between the candidates was stark. Jokowi rose from humble beginnings to become a successful furniture-exporting businessman and an effective governor of Jakarta. Prabowo is a former army general and the son-in-law of late president Suharto. Jokowi ran on a platform of reform and progress. His persona signified hope and a better democratic future, whereas Prabowo offered decisiveness and the charisma and instincts of a strongman, appealing to and capitalising on what was good about the past. The result was close, with around 53 per cent of the vote for Jokowi to 47 per cent for Prabowo.

What is crucial to note at this point is the strength of the country’s democratic institutions. Like most developing countries, Indonesia has its fair share of scandals and intrigues, such as the conviction of the former head of the Constitutional Court, Akil Mochtar, for corruption. But this election was free and fair, unmarred by violence. The voter turnout was also high: more than 70 per cent, in an archipelago with many far-flung islands.

Most important in any decent democratic contest is that the winner has to be allowed to rule and the loser has to accept defeat without endless remonstration.

Although Prabowo has protested, some of his coalition allies have thrown in the towel, including outgoing president Susilo Bambang Yudhoyono. The controversy over the quick post-poll vote counts and the final tally by the General Election Commission may reach the Constitutional Court, but it is hard now to deny a Jokowi presidency.

Indonesia’s democracy appears to be consolidating incrementally. Its electorate participates in democratic contests and stands by the results. Its institutions of accountability stand by the electorate’s decision. This is not the case in countries like Thailand, where free and fair election results can be overturned time and again, or Cambodia where manipulated polls can keep incumbents in power.

As for Jokowi, he will have to learn that Indonesia is not Jakarta. Expectations are running high after Yudhoyono’s perceived ineffectual leadership. The new president will have to form a capable cabinet. And he will need a team of credible policy professionals in the foreign ministry to maintain Indonesia’s role in the G20 and to provide thrust for ASEAN. Yudhoyono set a fine example for Indonesia’s global standing, having assembled a technocratic team around foreign minister Marty Natalegawa. The president-elect, who will be Indonesia’s first leader without any personal connection to its authoritarian past, will also need to be assertive with his party’s matriarch, former president Megawati Sukarnoputri.

If Jokowi lasts a full term and Indonesia can usher in another steady presidential changeover, the prospects of a democratic consolidation will brighten and inspire weaker Southeast Asian democracies, indirectly imposing constraints on democratic reversals by force of example.

Cambodia’s problematic election results from July 2013 have been resolved by a compromise that will allow its national assembly to convene in full. This is the right direction for Cambodia’s fledgling democracy to take. It has to become less authoritarian in practice prior to the next election, and its opposition party has to offer viable leadership and attractive policy programs in the interim.

Myanmar and Thailand are the next test cases. Both are set for elections next year. Myanmar’s leadership contest is fierce, weighed down by communal and religious violence and beset with growing restrictions on freedom of expression, and violations of human rights.

Currently under a military government, Thailand remains stuck in its cycle of coups, constitutions and elections. It is supposed to end up with a better democracy after its latest military coup. It is doubtful, though, that Thai democracy can be properly restored after being interrupted by its military. Ironically, Thailand is more similar to Myanmar these days than to Indonesia, even though Indonesia used to emulate Thailand just 16 years ago.

Indonesia is the most successful democracy in the region at this time — though all democracies in Southeast Asia have their defects. Jokowi’s victory will provide ASEAN with regional leadership as the 47-year-old organisation moves into an ambitious phase under the ASEAN Community plans. It is also a boon for democratisation in the Southeast Asian neighbourhood. Had Indonesian democracy suffered a setback with a Jokowi defeat, it would have dealt a major blow to regional democratisation. In a long view, Jokowi’s triumph may have saved the future of democratisation in Southeast Asia.

Thitinan Pongsudhirak is associate professor and director of the Institute of Security and International Studies, Faculty of Political Science, Chulalongkorn University.

Categories: Forum

Japan’s search for a new regional vision

East Asia Forum - Sun, 07/27/2014 - 19:00

Author: Peter Drysdale, Editor, East Asia Forum

To many inside and outside Japan, Japanese prime minister Shinzo Abe brings both hope and a breath of fresh air to an economy and society that has been in relative retreat in recent times. Abenomics, with its enthusiastic adoption of unconventional monetary policy under the skilful leadership of Haruhiko Kuroda at the Bank of Japan, its commitment to continuing fiscal stimulus and its promise, as yet not fulsomely delivered, of deep structural reform — is just the mix of tonics that the Japanese economy needs. The reversal of price deflation is an early harbinger of better times to come. Certainly Abe’s clear articulation of his economic agenda was a decisive factor in his electoral success and appears to be a critical element in his continuing popularity.

But Mr Abe embodies much more than a well-crafted if yet-to-be-fully-executed economic vision for Japan’s economic future. Love him or hate him, if you’re an average Japanese punter, you know that this guy is trying to find a place for Japan that has been somehow, somewhere lost over the past few decades. That’s a feeling that deep down is gnawing at your soul too, even if you haven’t had cause to be too worried about it. So while you may not be altogether comfortable with the non-economic parts of where Mr Abe appears to want to take Japan, his ambition for the country strikes a sympathetic chord.

As Thomas Berger says in his interesting analysis of Abe’s visit to Australia the week before last ‘one of the root causes of Japan’s current difficulties is a loss of self-confidence. They [conservative politicians] see restoring Japan’s “confidence” as vital to getting the country back on track. Much like Ronald Reagan when he famously declared “its morning in America”, Abe wants to convince Japan — and the world — that “Japan is back”. From Abe’s perspective, this requires the promotion of a healthy sense of patriotism, which is free from both the psychological baggage of Japan’s pre-1945 past and the institutional restrictions that were imposed on Japan in the post-war period. First among these restrictions is the American imposed Japanese constitution and in particular its pacifist clause, Article 9. This central tenet of modern Japanese conservatism is widely believed by Abe’s supporters in the Liberal Democratic Party and, by all indications, Abe himself’.

The loss of self-confidence, of course, not only has to do with the genteel relative decline of the Japanese economy but also the relative rise of its neighbours, spectacularly China but also South Korea and the other Asian economies.

Looking back at the post war history of Japan in Asia, the most remarkable retreat has not been on the economic front — the dynamism of Japanese business networks right around the region, including in China, continues to be one of its distinguishing features — but of Japan’s conception of its role and its vision for the region, a role and a vision that was widely shared among the Japanese public and policy leaders in the years through the end of the Cold War, It was a vision of region-wide economic dynamism, with expanding frontiers stretching from its Northeast Asian neighbours through Southeast Asia and, of course, into China. It was a vision that took Japan’s leadership and role in the region’s economy for granted, as an assumption. What made the vision so attractive, as Takashi Shiraishi has remarked, is that for ‘the first time in its modern history, Japan could be both Asianist and internationalist at the same time…it could play a role in the creation of an open regionalism in the Asia-Pacific while harmonising Japanese economic expansion with the maintenance of the Japan–US alliance’.

The scale of what has happened in China, of course, has seen the partial, perhaps almost total, eclipse of this vision of Japan’s role in the region. It is not yet clear what alternative vision has emerged, one that has been thought through and its logical consequences digested and accepted by the majority of the Japanese people today. Certainly Mr Abe has a sense of a vision of Japan’s place in the region and the world, but it is one that is yet to be fully embraced by the Japanese nation.

Hitoshi Tanaka, in another of our leads this week, describes Japan’s current approach to China under Abe as ‘to talk tough’ while insisting that the door for dialogue is always open. ‘But’, he says, ‘what is sorely needed is a comprehensive China strategy that is both firm on security and bold on engagement’.

Moves to reinforce Japan’s security should be welcomed, Tanaka argues, and it is necessary for the Japanese public to work through the issues of collective self-defence, the role that the Self-Defence Forces should perform, and how Japan can contribute to the maintenance of peace. ‘At the same time, Japan must boldly build constructive relations with China in order to promote regional stability’. The two issues that remain obstacles to rebuilding meaningful and cooperative government-to-government relations, of course, are the tensions surrounding the Senkaku/Diaoyu Islands dispute and the question of Japan’s past. They are both issues on which Mr Abe has deep visceral difficulty in grasping the initiative, but for which his pedigree makes him uniquely equipped to be the statesman.

As Amy King observes in another of this week’s leads, Japan’s inching away from its collective security constraints also poses problems for Chinese engagement, of which there was hint in China’s cautiously critical official response. Hopefully it’s now a time for ‘creative thinking’ on both sides of the China–Japan relationship.

Peter Drysdale is Editor of the East Asia Forum.

Categories: Forum

China’s response to Japan’s constitutional reinterpretation

East Asia Forum - Sun, 07/27/2014 - 05:00

Author: Amy King, ANU

On 1 July 2014, Japan’s Abe government announced a major change to the country’s post-war security policy by effectively lifting the ban on collective self-defence. The Abe government introduced new legislation that reinterpreted Article 9 of the Japanese Constitution, thereby permitting Japan to use military force to come to the aid of an ally or a country in a close relationship with Japan when it is under armed attack.

China’s response to Japan’s reinterpretation of the constitution has been predictably negative. The official Xinhua news agency described the changes as a ‘brutal violation’ of the spirit of Japan’s pacifist constitution, while the Chinese Foreign Ministry in more muted tones suggested that constitutional reinterpretation raised doubts about Japan’s commitment to peaceful development.

In the weeks since the Abe government’s announcement, two themes have become particularly notable in Chinese official and academic commentary.

The first is staunch criticism of the way in which the Abe government circumvented Japanese public opposition to lift the ban on collective self-defence. Instead of making these changes by formally revising the constitution — which would require support from two-thirds of each house of the Japanese parliament and 50 per cent of the Japanese public — the Abe government instead opted for the simpler path of constitutional reinterpretation via a cabinet decision. This required the unanimous support of only the 19 members of the cabinet, and amendments to relevant laws to implement to reinterpretation will require support from 50 per cent of each house of parliament.

Chinese officials and academics alike have roundly censured the Abe government for ignoring the considerable portion of the Japanese public that opposes these changes to national security policy. Chinese Foreign Ministry spokesman Hong Lei noted the strong public opposition within Japan to lifting the ban on collective self-defence, while Wang Ping from the Institute of Japanese Studies at the Chinese Academy of Social Sciences argued that Abe was acting in defiance of the long-held norm of ‘pacifism’ in Japan. Indeed, one of China’s leading Japan-watchers, Lian Degui of the Shanghai Institutes for International Studies, has predicted that Abe’s willingness to ignore Japanese public opinion on this issue will lead to the downfall of his government.

Highlighting Japanese public opposition to major security reforms is a strategy that Chinese officials have adopted frequently over the past sixty years. In the 1950s and 1960s, Chinese Foreign Ministry officials regularly described the intricacies of Japanese Diet debates or public protests about the US-Japan alliance on the pages of the People’s Daily in order to reach out to the Japanese public and build opposition to changes in Japan’s security policy.

Yet, as in the 1950s and 1960s, this strategy is unlikely to have much success.

While Japanese public opinion remains divided on the issue of collective self-defence, China’s ability to exploit these divisions is limited. China’s own non-representative government weakens China’s credibility in criticising the Abe government for ignoring public opinion. Similarly, China’s behaviour in the East China Sea in recent years means that the Japanese public will most likely view China as a self-serving actor on this issue.

The second theme to have dominated Chinese responses to Japan’s constitutional reinterpretation is condemnation of the Abe government for undermining the post-World War II international order. The ‘post-war international order’ championed by China’s leaders and People’s Daily editorials is one in which Japan occupies a very particular role as an ‘abnormal’ non-military power. Japan’s ‘pacifist’ constitution is a major symbol of this post-war international order, requiring as it did that Japan renounce ‘the threat or use of force as means of settling international disputes’ and prohibiting Japan from developing military forces.

Though it has been steadily reinterpreted by the Japanese government over the past sixty years — for instance allowing Japan to develop its Self-Defense Forces and to participate in international peacekeeping operations — Japan’s ‘pacifist’ constitution has broadly kept Japan constrained as an ‘abnormal’ power not permitted to use force abroad. The Abe government’s constitutional reinterpretation has therefore been condemned by Chinese leaders because it allows Japan to further break free from this particular post-war status and, more importantly, to take military steps that could be seen to counter China’s rise.

The July reinterpretation is highly significant for regional security because it will force China to confront the possibility of dealing with a more ‘normal’ and powerful Japan in East Asia. We have yet to see much creative thinking in China about how to deal with such a Japan. Still, the Abe government may have forced China to start.

Amy King is a Lecturer in the Strategic and Defence Studies Centre at the Australian National University.

Categories: Forum

Forging a common regional approach to China

East Asia Forum - Sat, 07/26/2014 - 19:45

Author: Hitoshi Tanaka, JCIE

Despite China’s rapid and unprecedented economic growth, the world has yet to come to grips with the challenges and opportunities that the country presents. The story of China’s rise is as much about how the rest of the world responds to China as it is about the nation that China is growing to become.

China is going to be an increasingly influential player in the region. But concerns abound about what sort of power China aspires to be. Will it utilise its increasing power to promote shared stability and prosperity or to unilaterally alter the regional status quo?

From Japan’s perspective, Chinese activities over the Senkaku Islands seem geared toward competing for effective control, in contrast to the status quo, under which Japan maintains effective control. This can be construed as a tactic to test the resolve of the US-Japan alliance. China’s domestic governance challenges —income inequality, corruption, environmental degradation, and the pressure to achieve the target of doubling 2010 GDP and per capita income by 2020 — could exacerbate the risk that China will utilise a tough foreign policy posture as a diversionary tactic.

A number of obstacles need to be considered to lay the groundwork for a common regional approach on cooperation with China.

The United States has long pursued a hedging policy toward China, but the efficacy of its policy is undermined by domestic political divisions. Some political leaders tend to emphasise an alliance-first approach and the need to hedge against unpredictable behaviour while others emphasise the need to forge constructive relations. But the issue of how to deal with China has too often been used by one side as a bludgeon against the other. A continuation of partisan politics will only exacerbate the difficulties that the US faces in formulating its China policy, and there is an urgent need to consolidate this policy before presidential election posturing kicks into high gear and Obama enters a lame duck period.

Any hedging strategy by definition includes both deterrence and engagement. The current hedging strategy mistakes engagement for weakness, but engagement should be bolstered through concrete measures, including strengthening confidence-building processes. Deterrence measures must balance the reality that US resources are limited. The US should, therefore, be careful about drawing any red lines, which may present China with a convenient opportunity to expand its influence right up to the line without actually crossing it.

Japan’s current approach to China under Prime Minister Shinzo Abe is to talk tough. To fend off critics, Abe insists that the door for dialogue with China is always open. But what is sorely needed is a comprehensive China strategy that is both firm on security and bold on engagement.

Moves to reinforce Japan’s security should be welcomed. With the shifting balance of power, it is necessary for the Japanese public to deeply consider issues such as collective self-defence, the role that the SDF should be performing, and how Japan can contribute to the maintenance of peace. Japan may in the future need to play greater roles than rear-area support to the US. And security cooperation with countries such as Australia, India, and ASEAN member states, the US, and South Korea, should be promoted in order to hedge against future unpredictability.

The reinterpretation of Article 9, adopted by the Abe government through a cabinet decision on 1 July, will remove some of the existing restraints on SDF troops’ use of weapons during UN-led peacekeeping missions and allow the SDF to contribute more actively in responding to contingency scenarios that directly threaten Japan’s national security. But it is crucial that in-depth explanations are given as to why changes have to be made now, and a robust mechanism should be established to ensure that the scope of changes stays within the intended purview and genuinely retains the spirit of Article 9.

At the same time, Japan must boldly build constructive relations with China in order to promote regional stability. Two main issues stand out as obstacles to rebuilding meaningful and cooperative government-to-government relations: tensions surrounding the Senkaku Islands and history issues. The Senkaku issue does not lend itself to a short-term resolution. Before a long-term solution can be achieved, it is critical that the two countries de-escalate tensions and strengthen crisis management systems. On the question of Japan’s past, it is vital that the Japanese government does not undermine established official statements, such as the Murayama and Kono statements.

On ASEAN there is a critical need to demonstrate a unified front and continue to move steadily toward the implementation of the ASEAN Economic Community (AEC) in order to cooperate confidently with China.

Given China’s increasingly assertive posture and the unpredictability of its future role, many nations around the region feel a strong motivation to align themselves with the US. At the same time, it must be made clear that hedging is not containment and includes a strong component of engagement toward China.

A robust regional confidence-building mechanism, perhaps through the East Asia Summit, is sorely needed. Talk of responsible regional stakeholding may be perceived in China as an attempt to constrain its behaviour. However, engagement with China can help to bring about the realisation that unilateral changes to the status quo will undermine its regional relations and economic growth founded in international cooperation is the best path forward both for China and shared regional stability and prosperity.

The makeup of the East Asia Summit (EAS) means that it is the best venue for working toward a shared prosperous future in East Asia.

Hitoshi Tanaka is a senior fellow at the Japan Center for International Exchange and chairman of the Institute for International Strategy at the Japan Research Institute, Ltd. He previously served as Japan’s deputy minister for foreign affairs.

This article is an extract from East Asia Insights Vol. 9 No. 3 July 2014, which is available in full here, and is reprinted with the kind permission of JCIE.

Categories: Forum

Abe strikes a delicate balance in Australia

East Asia Forum - Sat, 07/26/2014 - 05:00

Author: Thomas U. Berger, Boston University

Today, Japan finds itself in a remarkably difficult diplomatic and domestic political situation. While Japan continues to be secure from any existing external threat, the rise of a nuclear North Korea and an increasingly powerful and assertive China are creating major challenges for Japanese security policy.

A serious issue is the stand-off with China over the disputed Senkaku/Diaoyu islands. For the first time in the history of the US–Japan alliance, it is Washington — not Tokyo — that is worried it might be dragged into a conflict in which it has no concrete interests. Tokyo must deter China from escalating the confrontation, while also reassuring the United States (and other countries Japan hopes to cooperate with on security affairs) that it is a reliable partner.

In addition to these diplomatic issues, domestically, Japan is beset by a host of social and economic problems which have been exacerbated over the past two decades by a political system that is prone to paralysis.

For conservative politicians such as Japan’s prime minister, Shinzo Abe, one of the root causes of Japan’s current difficulties is a loss of self-confidence. They see restoring Japan’s ‘confidence’ as vital to getting the country back on track. Much like Ronald Reagan when he famously declared ‘its morning in America’, Abe wants to convince Japan — and the world — that ‘Japan is back’. From Abe’s perspective, this requires the promotion of a healthy sense of patriotism, which is free from both the psychological baggage of Japan’s pre-1945 past and the institutional restrictions that were imposed on Japan in the post-war period. First among these restrictions is the American imposed Japanese constitution and in particular its pacifist clause, Article 9. This central tenet of modern Japanese conservatism is widely believed by Abe’s supporters in the Liberal Democratic Party and, by all indications, Abe himself.

Unfortunately for Abe, his desire to boost ‘healthy’ Japanese patriotism creates problems for other parts of his political program. Many Japanese — including his coalition partner, the Buddhist influenced New Komeito Party — are uneasy with his nationalism, fearing that it may undermine Japanese democracy and pave the path to war. Many of Abe’s foreign security partners, including many pro-alliance Americans, are worried that Abe’s nationalism needlessly provokes Japan’s neighbours and raises questions about Abe’s ultimate reliability.

Abe has to strike a difficult balance between promoting his brand of conservative nationalism without alarming or unsettling those who do not share his views. This is no easy task. But it is one that Abe is bravely tackling, as reflected by his speech to the Australian parliament on 8 July.

Abe seized the bull by the horns by addressing the issue of Japan’s troubled wartime history. Abe emphasised how young Australians suffered during World War II and stressed that post-war Japan wishes to never again allow such terrible events to happen.

Although Abe did not indicate that Japan was responsible for those horrors, by addressing the terrible death marches of Australian prisoners at Sandakan and the battle of Kokoda (where Japanese forces were reduced to cannibalism) Abe implied that both sides suffered and should forgive each other.

This point was reinforced when Abe spoke movingly about the mother of a Japanese sailor who had died aboard a submarine sunk in Sydney Bay. In 1968 the Australian government invited the sailor’s mother to a commemoration ceremony. Abe praised the courage of the young sailor while getting his main message across — quoting former Australian prime minister Menzies, Abe said ‘hostility to Japan must go. It is better to hope than always to remember’.

Following his discussion of history, Abe proceeded to address the common interests that unite Australia and Japan. He wisely began with common commercial interests and the Economic Partnership Agreement. Abe also stressed his continued support for the Trans-Pacific Partnership and for the much broader Regional Comprehensive Economic Partnership and Free Trade Area of the Asia Pacific initiatives, which would include China. Abe linked this ambitious trade agenda to Japan’s internal economic and social reforms, including the promotion of female participation in the work force as part of the so-called ‘womenomics’ agenda.

Abe then moved to the area of enhanced security cooperation, arguably the most novel part of Japan’s new diplomatic agenda. While acknowledging the common values of peace, democracy and human rights, the main emphasis of Abe’s remarks on security was Australia and Japan’s shared commitment to the rule of law and open seas and skies. This, of course, was an oblique criticism of China’s recent assertive stance on territorial issues in the South and East China Seas. As such it may be speculated that countering China’s maritime thrust is the central objective of Australia–Japan security cooperation, though Abe did not directly refer to China.

In all, Abe’s speech was a skilful performance. But it was also one that reflects the tensions and contradictions that beset Abe’s ambitious program. Whether it will be possible for Abe to maintain this delicate balance remains to be seen.

Thomas U. Berger is an Associate Professor of International Relations at Boston University. 

Categories: Forum

Modi should use future budgets to build, build, build

East Asia Forum - Fri, 07/25/2014 - 17:00

Author: Geethanjali Nataraj, Observer Research Foundation

Expectations of the Modi government’s first budget were high. But, in the face of difficult fiscal circumstances and volatility in oil and food prices, the new government and Finance Minister Arun Jaitley had limited options. Seen in this light, this year’s budget is balanced and gives a sense of direction to the economy. In fact, it has laid the base for a whole set of reform measures that will be put into the place around the next budget.

One of the key sectors addressed in the budget is the infrastructure sector. However, only time will tell whether the measures announced will be sufficient. The inadequacy of quality infrastructure at internationally competitive prices has long been recognised as a handicap to the development of India’s economy. In this context, it was imperative for the budget to pursue infrastructure reforms with more rigour. Some of the key measures related to infrastructure in the budget are as follows.

The government has given equal emphasis to all physical infrastructure, including roads, rails, ports and aviation infrastructure.

Carrying on the legacy of the Vajpayee government, the new government has allotted US$6 billion for national highway development and US$2.4 billion for the development of roads to unconnected villages. The budget has also placed an emphasis on developing urban metros using public-private partnerships (PPPs) in different parts of the country. The government has allocated US$16 million for metro schemes in Ahmedabad and Lucknow. Attempts will also be made to have a metro system in all cities with a population over two million. Further, US$827 million has been allocated to the National Bank for Agriculture and Rural Development for the development of rural infrastructure.

Aviation infrastructure in India has seen a great deal of investment over the last decade owing to increased demand in both passenger and freight traffic. Several airports have been revamped and expanded via PPPs in the last few years. The budget has provided for the further development of airports, again using PPPs, in all tier 2 (with a population of 3 million) and tier 3 cities (with a population of 1.5 million). There will also be US$1.16 billion allocated to the PPP-led development of 100 smart cities and new airports. Similarly, attention has been given to ports with US$1.87 billion put towards the setting up of 16 new ports.

An important step that the Modi government has taken is allowing banks to issue long-term bonds without subjecting them to cash reserve ratio and statutory liquidity ratio for financing infrastructure.

Investors in export industries choose between destinations, and infrastructure is a key consideration. India’s poor infrastructure threatens to hold back the flow of export-oriented FDI. Consequently, the government has raised the limit on foreign direct investment in sectors such as insurance (with a new limit of 49 per cent) and defence manufacturing (also up to 49 per cent, from 29 per cent). It has also promised to take steps towards reviving special economic zones.

Manufacturing should be a priority.

So, it is welcome that the government will provide an investment allowance at 15 per cent for three years to manufacturing companies that invest more than US$4 million in plants or machinery. The Kakinada port will also be developed with a special focus on manufacturing.

The government has announced other notable measures, including the establishment of special economic zones for women in 100 districts.

All these measures are expected to give a boost to trade and manufacturing and thereby growth in the economy. In infrastructure, at least, the Modi government’s first budget is a step in the right direction.

Geethanjali Nataraj is a senior fellow at the Observer Research Foundation in New Delhi.

Categories: Forum

East Asia’s geostrategic equation and Japan’s collective self-defence

East Asia Forum - Fri, 07/25/2014 - 05:00

Authors: John Blaxland, ANU and Rikki Kersten, Murdoch University

Given that Japan is a mature democracy and has been a positive force for global peace and stability for the past 70 years, why is it so controversial that the country wants to possess more ‘normal’ military capabilities?

Japan is one of the top military spenders, ranked 8th globally by Stockholm International Peace Research Institute, and spends between US$48 billion and US$50 billion on defence per year. Japan has leveraged its high-tech commercial industries to develop a self-defence force that — although untested in combat — is capable of employing potent military force.

The United States has long been interested in seeing Japan adjust its self-defence policy to enable it to participate more robustly in alliance activities. In 2005, Australians had to operate alongside the Japanese task force deployed to southern Iraq because constitutional provisions precluded them from using force. Today, that kind of embarrassing dependence on others is increasingly unacceptable to Japanese conservatives.

Japan’s revision of its collective self-defence policy is likely to have a transformative effect on the East Asian geostrategic equation. Japan and the US could potentially plan together and test relevant capabilities more effectively. Countries such as the Philippines and Vietnam will be weighing up the potential ramifications of a new Japanese defence policy as they confront China in the South China Sea.

Japan’s move to revise its self-defence policy can also be viewed as a quid pro quo for US President Obama’s commitment to guarantee the security of the Senkaku/Diaoyu Islands.

Still, Abe has had to circumscribe the exercise of collective self-defence to bring his coalition partner, the New Komeito, on board. But the cabinet’s decision to acknowledge Japan’s right to exercise collective self-defence represents a weakening of the logic of ‘passive pacifism’ that has underpinned Japan’s postwar security policy.

If the necessary amendments to related legislation pass both houses of parliament, Japan’s military planners would also be better placed to cooperate with other regional forces under the US Pacific Command, including Southeast Asian states. Implementing the lessons learned from the US–Japan Operation Tomodachi (‘Friends’) following the 2011 Tohoku triple disaster could also enhance the quality of joint operations, showing clearly how humanitarian assistance and disaster-relief efforts spill over into military planning and enhanced interoperability. Moreover, the Abe administration is already concentrating its diplomatic efforts, including defence aid, towards ASEAN in a clear demonstration of its priorities in the region.

Some parties are ambivalent if not overtly hostile to this change. Opponents within Japan are deeply troubled by the proposed changes to Japan’s self-defence policy. Pacifists see this as more evidence of a forced resurgence of a martial spirit, manufactured by the Abe government. In this respect, Abe is his own worst enemy: he desires popular support for a ‘normal’ military posture for Japan, but he circumvents parliament and public opinion in order to achieve his policy goals. Abe has astutely tried to mobilise the ‘proactive pacifism’ norm to convince ordinary citizens that enhanced military capability can sit comfortably with a pacifist national identity. But his persistent revisionist statements undermine his objectives here too — and this is why the victim nations of Japan’s wartime acts find it difficult to accept that Japan’s military ‘normalisation’ is benign.

South Korea has expressed concern over Abe’s attempts to undermine official recognition of the trauma ‘comfort women’ suffered at the hands of the Imperial Japanese Army during World War II. Similarly, China has pointed to Abe’s denial of Japanese atrocities against Asian nations during World War II as an indicator of why Japan must not be permitted the status of a ‘normal’ military power today.

China today has sought to manage its disputes through bilateral channels rather than multilateral forums, to maximise its diplomatic and strategic advantage. How Japan’s changed role will affect these dynamics remains to be seen. But there is little doubt that China’s actions in the South China Sea are casting a positive light on Japan’s pro-ASEAN policy stance. This was the key message drawn from the recent Shangri-La Dialogue speech by Abe.

In light of changing power dynamics in East Asia, the United States has been eager to adjust its ‘hub-and-spokes’ alliance relationships in East Asia. This has also contributed to heightened collaboration between Australia and Japan. For example, Japan can gain access to bilateral and multilateral training areas and activities in Australia’s wide brown land and Australia can reap the benefits of access to advanced Japanese military technology, particularly submarine technology.

The EPA and closer security ties between Japan and Australia may constitute a new template for the next phase of the ‘rebalance’. But this need not be a zero-sum game. Efforts should be made to embrace China on the basis of mutual interests as demonstrated during the search in the southern Indian Ocean for the missing Flight MH370. There is much that can be done as participants in joint military exercises where interests and concerns overlap, including alongside Japan and the United States.

Dr John Blaxland is Senior Fellow at the Strategic and Defence Studies Centre, the Australian National University.

Professor Rikki Kersten is Dean at the School of Arts, Murdoch University.

Categories: Forum

Lessons from aid workers in North Korea

East Asia Forum - Thu, 07/24/2014 - 17:00

Author: Eun Jeong Soh, ANU

Since the mid-1990s, various governmental and non-governmental organisations have delivered aid to North Korea’s orphanages and hospitals. But for some time now aid to North Korea has dwindled. The US has provided virtually no aid since 2009, South Korea has banned direct state aid and and limited private assistance since 2010, and UN World Food Programme operations have been running well below target levels. Today, there is talk of resuming and large-scale humanitarian aid internationally. But the more consistent and successful aid provided by a small number of individuals from on a small scale provides important lessons. These individuals can offer an interesting perspective that challenges preconceived notions about how to engage with the isolated country.

Every week small traders, business people and aid workers travel the few hours from Yanji, the capital city of Yanbian Korean Autonomous Prefecture in China, to North Korea. Aid workers supply food to orphanages, and support hospitals and small farm projects. Others have built small food production facilities in North Korea’s Special Economic Zone, Rajin-Sonbong. These individuals usually receive appeals for aid from traders, but sometimes the appeals come directly from local officials. While some are self-supporting, many of these individuals receive financial help for their projects from overseas church groups.

Why does North Korea tolerate these individuals and the resources they bring?

The reason is simple: the North Korean regime has always insisted that the state will provide free health care and education. The leadership knows that its provision of social welfare is the ideological basis of popular support, and thus of social control. But with the virtual absence of resources, the ability of social welfare institutions to perform their functions has crumbled. The North Korean leadership’s insistence that the state is the primary provider of social welfare, coupled with bureaucratic barriers to seeking alternative means of support, leaves little room for privatisation and active appeals for outside resources. As a result, aid made available by outside actors is vital for the provision of social welfare.

Despite dilemmas and difficulties in providing aid to North Korea, individual aid workers have been successful because they have been patient enough to try to understand their local counterparts.

Mr Kim, an aid worker, told me, ‘the fundamental nature of all human beings is the same: the officials I work with are also trying to survive, protect themselves and support their families, under surveillance and lack of resources … If you try to practice theories and techniques learned at school, it does not work. The fundamental principle is to understand your counterpart as a human being and “localise” support’.

Goat farms have become a typical project in North Korea as part of an effort by North Korean officials to realise the supreme leader’s decree to ‘turn grass to meat’. Many organisations have brought in goats and set up goat farms. Initially, some farms achieved a degree of success in alleviating hunger and providing important nutrition for children. Donors expected the number of goats to double in a few years’ time. But the number of goats dropped as the North Korean owners struggled to feed them.

Mr Kim uses an alternative model: he donates a hundred goats in the spring and tells his North Korean partners to slaughter half for meat in autumn, when they have eaten up all the grass and before they become too thin in the winter. Their project goal is to ‘eat all the goats within five years’, not to double the number of goats.

To localise also means to be innovative. After many years of working in North Korea and observing the local system, Mr Kim thinks that a ‘social enterprise’ model may be worth experimenting with. In North Korea, enterprises are expected to make social contributions rather than profits. Foreign investors in Rajin-Sonbong complain that officials demand they contribute at least some of their profits to the country’s social welfare institutions.

But foreign investors could help North Koreans to experiment with social enterprise models by including a built-in social contribution function in business projects. A portion could be reinvested in production, while another portion could be sent to orphanages and hospitals. It is preferable for aid to create jobs and incomes, rather than simply providing materials. North Korea already has food, shoe, and pharmaceutical factories with foreign investment that are managed in this way.

Still, it is difficult to achieve transparency and accountability in aid spending. While donors expect transparency and accountability, this is only possible when local partners have a sense of ownership, and when trust between aid workers and their local counterparts has been established. When appropriate resources are provided and the positive outcomes of foreign partnerships become evident, aid workers report positive changes in their partner’s attitudes.

Aid workers to North Korea are often unable to see the full impact of their activities, but many share the idea that they are each doing a small part of the work necessary to bring about positive changes. With this mindset, they have continued their work despite many obstacles. Their experience has something to teach potential donors interested in aiding the North Korean people: be patient, build relationships, localise and innovate.

Eun Jeong Soh is a post-doctoral fellow at The Australia National University.

Categories: Forum

China’s SOEs test the waters in the South China Sea

East Asia Forum - Thu, 07/24/2014 - 05:00

Authors: Megan Bowman, George Gilligan and Justin O’Brien, UNSW

In early May, the Chinese HYSY-981 oil rig was moved into waters near the disputed Paracel Islands in the South China Sea. The oil rig is owned by the state-owned China National Offshore Oil Corporation (CNOOC) and operated by its subsidiary China Oilfield Services Limited. It was redeployed with Beijing’s approval to drill for another state-owned corporation, China National Petroleum Corporation (CNPC). The rig was deployed 120 nautical miles from Vietnam’s coastline and within Vietnam’s claimed exclusive economic zone. Conflict ensued between Vietnamese and Chinese sea-faring vessels and between citizens of both nations on Vietnamese soil.

On 15 July, the oil rig was moved back into Chinese waters. A CNPC press release stated that the ‘petroleum drilling and exploration operation of Zhongjiannan Project was smoothly completed on schedule on July 15th with the oil & gas shows [sic] found’, indicating that the removal was a response to commercial scheduling as opposed to foreign political pressures. The press release further stated that the ‘next phase’ of the project will depend on ‘a comprehensive assessment of hydrocarbon horizons … based on the geological and analytical data collected through the drilling and exploration operation’. Thus, even though the rig has been returned to Chinese waters a month earlier than initially planned, there is a high probability that it will be redeployed into disputed territory once more.

The HYSY-981 oil rig incident raises not only legal questions about sovereignty and regional security but also political economy issues regarding the role of state-owned enterprises (SOEs) in foreign jurisdictions. This latter aspect has featured far less in discussions of this incident to date.

As China continues its economic rise, questions over the presumed political motivations — rather than commercial strategies — of its SOEs have arisen in nations receiving Chinese foreign direct investment (FDI). For example, in 2005, China’s attempted acquisition of Unocal in the US was met with ‘fierce political opposition’, resulting in heightened US–China political tensions. In Australia, recent media headlines such as ‘China’s State-Owned Enterprises Obtain FIRB Approval by Stealth’ and ‘Don’t Mix Politics and Deals: FIRB in Warning to State-Owned Investors’ show similar unease.

Moreover, in 2012 the Canadian government revised the Investment Canada Act to explicitly state that ‘investors will be expected to address … in their plans and undertakings, the inherent characteristics of SOEs, specifically that they are susceptible to state influence’. Entities that are ‘owned, controlled or influenced, directly or indirectly by a foreign government’ must also assure the Canadian Minister of Industry that the project is commercial and free from political influence.

In many ways Chinese SOEs appear to be pursuing commercial opportunities in foreign jurisdictions in much the same way that Western corporations have done and continue to do. Yet, given that top executives of 53 of the most important Chinese SOEs have ministerial-level status and equal rank to provincial governors, there is clear implication that a controlling shareholder of an SOE has political as well as economic dominance. Accordingly, unease toward SOEs exists not only abroad but also within China where citizens have become concerned about domestic favouritism toward SOEs to the detriment of private entrepreneurship. This is partly because bank loans and preferential lending policies almost exclusively favour SOEs.

China signalled a lessening of state involvement last November when it declared the implementation of ‘market-orientated SOE reforms’ in its Third Plenum. Yet the HYSY-981 incident has challenged this rhetoric. The incident has reinvigorated questions about China’s use of SOEs to further its political strategy and to gain territorial advantages.

On the one hand, the actions of CNOOC and CNPC may well come within the ambit of legitimate pursuit of commercial goals in a natural resource-rich zone. Traditionally, SOEs tend to focus on areas of national priority: natural resources, utilities, telecommunication services and defence.

Yet undoubtedly the move was also a politically strategic assertion of China’s territorial claims. Following the initial deployment of HYSY-981, the South China Morning Post reported that Chinese SOEs had been told to temporarily freeze any plans for new business in Vietnam. Contrary to past promises, this is evidence of China using SOEs as political chess pieces rather than free market operators. Michel Henry Bouchet, of the Skema Business School in France, believes that China has risked drawing regional and international condemnation in order to test ASEAN and Western reactions regarding China’s geopolitical ambitions. To this extent, China’s ‘provocative behaviour’ challenges not only Vietnam but also ASEAN and Western geopolitical stakes.

Nonetheless, if China is aiming to provoke its regional neighbours, it has not yet successfully engaged Australia’s ire. Although Malcolm Turnbull, Minister for Communications, has commented that China’s current foreign policy is ‘genuinely counterproductive’ by pushing Asian countries closer to the US, the Australian Department of Foreign Affairs and Trade has issued cautiously worded media releases on the incident. While expressing ‘serious concern’, the Australian government has made clear that ‘Australia does not take a position on competing claims in the South China Sea, but has a legitimate interest in the maintenance of peace and stability, respect for international law, unimpeded trade and freedom of navigation’. Despite some US pressure for Australia to become more involved, it is unlikely that Australia will purposefully aggravate its most lucrative two-way trading partner.

Australia is currently pursuing bilateral trade agreements within the Asia Pacific region, including Japan, South Korea and China. Juggling these relationships is proving more difficult since the CNOOC incident. The recent visit to Australia by Japan’s Prime Minister Shinzo Abe is believed to be a message to China to not allow its territorial disputes to threaten the economic rise of the region as a whole. To this end, Prime Minister Abbott has attempted to reassure China that strengthening Australia’s ties with Japan are not intended to aggravate it. But this may not convince Beijing. An article in Xinhua, a Chinese state-run media outlet, has since described Prime Minister Abbott as ‘appalling and insensible’ after alleging that he praised Japan’s war time aggression.

Whether the latest action by China’s largest SOEs is commercially or politically driven, it has undoubtedly exacerbated regional economic and political tensions — threatening more than just diplomatic relations between Vietnam and China.

Dr Megan Bowman is a Research Fellow, Dr George Gilligan is a Senior Research Fellow, and Professor Justin O’Brien is Director of the Centre for Law, Markets and Regulation (CLMR) within UNSW Australia Faculty of Law.

The authors thank CLMR intern, Ms. Stephanie Cardy, for her research assistance in producing this article. They also acknowledge the financial support of the Centre for International Finance and Regulation (for project Enter the Dragon: Foreign Direct Investment and Capital Markets, E002), which is funded by the Commonwealth of Australia and NSW State Government and other consortium members (see

Categories: Forum

Hong Kong democracy and Beijing’s promise

East Asia Forum - Wed, 07/23/2014 - 17:00

Author: Joseph Cheng, City University of Hong Kong

In 2007, Beijing promised the people of Hong Kong elections by universal suffrage for the position of chief executive in 2017, and the entire legislature by the same method in 2020. Last year, the pro-democracy movement started its campaign to fight for the implementation of Beijing’s promise.

But the position of the Chinese authorities has hardened since 2007. Officials are indicating that candidates have to ‘love China, love Hong Kong’. There will also be a nomination committee that will exercise ‘institutional nomination, implementing the majority will’. What seems to be intended is that a pro-Beijing elite will capture the majority of seats on the nomination committee, which would then control the list of candidates for the chief executive election. The requirement that candidates have to ‘love China, love Hong Kong’ will therefore form the basis of a political screening process.

Such insincerity on the part of the Chinese authorities has led to impatience in the pro-democracy movement. The situation is becoming more confrontational as Beijing shows no inclination to back down: suggestions for compromise initiated by moderate groups have been given the cold shoulder. More significant still, the pro-Beijing united front has formed many ‘patriotic organisations’ which have been engaging in numerous confrontations in political seminars and gatherings. Civilised political discourse in the territory has been deteriorating and this in turn contributes to the political polarisation of society.

There are also deeper structural factors involved that can be seen across East Asia, and grievances are accumulating. Globalisation and economic integration with Mainland China have led to a widening gap between the rich and the poor. And, for the bulk of the population, especially for young graduates, real wages have been in decline for more than a decade. Many young people cannot afford their own home — and there are also widespread complaints about the general difficulties of getting married and having children.

Against this backdrop of growing social grievances, the people of Hong Kong are also seriously concerned by the collusion between top government officials and big businesses. In the past this was a vague concern, but with the investigations of former chief executive Donald Tsang and former independent commissioner against corruption Timothy Tong, as well as the current corruption court case involving the former chief secretary for administration, Rafael Hui, and the Sun Hung Kai Properties tycoons, the collusion has become more than apparent.

People increasingly realise that policies favouring big businesses come at their expense, especially those concerning land sales, provident fund management, the absence of collective bargaining rights for trade unions and the lack of competition in many sectors, including supermarkets.

Since the massive protests on 1 July 2003 against the proposed Basic Law Article 23, the Chinese authorities have increased their interference in Hong Kong politics, leading to a vicious circle: as the Chinese leaders become more worried, they interfere more, triggering more resentment, and the Chinese authorities in turn believe that they have to intervene more.

The anti-patriotic education campaign in 2012 was a good example. Former president Hu Jintao considered that ‘the hearts of Hong Kong people had not returned to the Motherland’. They therefore had to be better educated. But the patriotic education program was rejected by parents and students as brainwashing, and as going against the community’s core values.

On 10 June 2014, the State Council Information Office released a white paper on the implementation of the ‘one country, two systems’ model, with the intention of lowering the expectations of the people of Hong Kong about political reform. The basic message was that whatever power Hong Kong has derives from Beijing. It also asserts that local ‘judges have a “basic political requirement” to love the country’. This has alarmed the people of Hong Kong because the independence of the judiciary is one of their most significant core values. The white paper probably contributed to the huge turnout (around half a million people) for the following pro-democracy rally on 1 July.

It seems unlikely that Beijing will grant Hong Kong genuine democracy. But widespread unrest is also unlikely: most people in Hong Kong are moderate and value stability and prosperity. Still, the government will lose legitimacy in the eyes of the people, and society will be further polarised.

Joseph Cheng is Professor of Political Science at the City University of Hong Kong.

Categories: Forum

Cementing the BRICS together

East Asia Forum - Wed, 07/23/2014 - 06:04

Authors: Garima Sahdev and Geethanjali Nataraj, Observer Research Foundation

India’s Prime Minister Narendra Modi is in Brazil for his first major international summit, the sixth annual BRICS summit. Before his departure, the leader put forward his vision that the vitality of the BRICS group would cut across the geographical and ideological divides of not only the five countries of the group but also of the global economy.

The BRICS countries, once called the growth engines of the global economy, have shown uneven growth in recent years. The West, meanwhile, is looking at new avenues to bring back its tumbling economic clout and there has been a sudden surge of mega free trade agreements (FTAs) such as the TTIP (Transatlantic Trade and Investment Partnership) and the TPP (Trans-Pacific Partnership). These new agreements, with tougher labour and environmental standards and next generation rules for trade and investment could result in disguised protectionism aimed at restricting imports from the emerging economies.Bilateral economic tensions have also added to the difficulties the group is facing.

So, how can BRICS cement its status as a credible economic bloc?

The US and the EU are preparing to enter into the largest trade deal in history — the TTIP — an arrangement which would complement the other gigantic US-led trade deal, the TPP. Yet, there is a striking absence from the deal of the countries which emerged as the more assertive leaders after the 2008 global financial crisis — the BRICS. Despite the economic side effects of the 2008 financial crisis and the Eurozone crisis, the BRICS — as an organisation — is growing more relevant and increasingly institutionalised. Economic growth rates continue to outpace the rest of the developing world. According to the UNDP, Brazil, China and India’s combined GDP will be greater than the combined GDP of the US, the UK, Canada, France, Germany and Italy by 2020.

It will be important for the BRICS to consolidate their global position. But the TTIP is not only an attempt to forge a trade deal aimed at market liberalisation and eliminating trade barriers between the US and the EU. It essentially marks the latest strategy to preserve the rules on international trade and thus continue Western domination over international governance structures.

There are conflicting predictions on the effect that the TTIP would have on non-TTIP countries. One recent study speculates a collective gain of approximately €2.4 billion (US$4.1 billion) for non-TTIP low-income countries. Another report sees a significant loss of market share for developing countries as a result of the FTA. The study speculates that trade between Germany and BRICS would drop by around 10 per cent while US–BRICS trade would decline by around 30 per cent.

In such a scenario, the BRICS countries have a choice. Either pursue a BRICS FTA to enhance cooperation, enabling BRICS to counter marginalisation by the TTIP, or maintain the status quo.

The TTIP does not pose a significant threat to the BRICS and has the potential to have a positive spillover effect on other countries. The BRICS could therefore take an approach of passive engagement. While not directly attempting to balance the TTIP, the BRICS countries could intensify their efforts at closer cooperation and consolidate their position as a powerful trade bloc.

The biggest impediment to the BRICS becoming a cohesive force is bilateral economic tensions. China, for one, continues to account for the lion’s share of intra-BRICS trade. And currency manipulation by China remains another sticking point. Furthermore, barriers to trade and investment need to be removed. Inadequate infrastructure and framework conditions like cumbersome trade facilitation — excessive logistic costs in particular — and other non-tariff barriers in the form of technical measures and sanitary and phyto-sanitary measures are proving stumbling blocks, the negative effects of which far exceed those of tariff barriers.

The establishment of the proposed BRICS development bank would, to a great extent, address infrastructure funding shortages in these countries, something which Prime Minister Modi also spoke of prior to his departure for the summit.

With their common ‘anti-interventionist’ policy, the bloc has the potential to rival Western domination in Africa. The less-developed economies of Africa may also feel more comfortable associating with the developing nations of the BRICS for historical reasons and because of the ideal of multilateralism that the BRICS stand for. The 2013 BRICS Summit in Durban was a declaration of a lasting, symbiotic relationship with the African continent — Africa offers a large, diverse market to the BRICS in the form of one billion consumers and a growing middle class.

Following the Durban example, this year all the South American heads of state have been invited to the BRICS Summit — attributing a perceptible geopolitical colour to the bloc which is widely seen just as an ‘economic bloc’.

BRICS countries have been taking small steps towards increasing cooperation in the wake of the rapidly changing global economy, especially after the 2008 financial crisis. Their common concerns on growth and development, and their resolve to lessen their dependence on existing Western-led financial structures, cement this partnership. More importantly, the bold idea of a BRICS development bank and a common monetary unit further exhibit their intention to drive the transition from unipolar global financial governance to a multipolar system — a system that amplifies the voice of the emerging economies and reflects the reality of the global economy.

Garima Sahdev and Geethanjali Nataraj are researchers with the Observer Research Foundation, New Delhi.

Categories: Forum

Will Myanmar’s military exit the political stage?

East Asia Forum - Tue, 07/22/2014 - 17:00

Author: Adam P. MacDonald, Halifax, Canada

Over three million Burmese have signed a petition by Myanmar’s main opposition party, the National League for Democracy (NLD), urging immediate constitutional revision. A significant cause for protest has been the political powers afforded to the country’s military, the Tatmadaw, by the constitution.

Although the petition demonstrates the direction in which many want the country to go, such actions are unlikely to force the generals’ hand. Aware of the dramatic changes to the state and society that the military has introduced over the last five years, and their subsequent new role in the political architecture, the generals remain unwilling to fully relinquish control.

What will promote the military’s withdrawal from politics? Is the military leadership determined to play a perpetual political role? It appears so, based on comments by Senior-General Min Aung Hlaing justifying such involvement. Article 6 of the constitution also allows ‘the Defence Services to be able to participate in the National political leadership role of the State’.

But there are important signs that the military is at least entertaining the thought of reform — both internally and in their relationship with the state.

The Tatmadaw, despite the transfer of power to a nominally civilian government following the 2010 elections, carefully cordoned off certain areas under its exclusive purview: security portfolios, guaranteed representation in cabinet and parliament, and a veto over constitutional change. The guarding of these selective powers, which stands in contrast to other widespread changes to the state and society, is promoted by an entrenched praetorian ethos which has been at the forefront of the military’s history of political involvement: a belief that they alone have the ability to determine who rules and how, which has usually meant themselves.

Since the construction of the new political system, however, their role has changed significantly.

Most importantly, the military generals have become ‘guardians’ or ‘mediators’ instead of direct rulers. They remain interested and powerful political actors but have retrenched from many areas of governance and administration — and by and large they allow the political architecture to function free from any interference other than their constitutional representation. And, though there remains a large number of military (current and retired) personalities running the state, there appears to be a formal demarcation between the military, as an organisation focused on national defence, and the political apparatus responsible for the governance of the state. This distinction did not exist during the previous junta-led regime where politics and the military were indistinguishable.

The Tatmadaw, furthermore, is retreating not only from the political sphere (albeit selectively) but also from other important sectors as well. Economically, the monopolies enjoyed by the Tatmadaw’s two conglomerates — the Union of Myanmar Economic Holdings and the Myanmar Economic Corporation — are waning as the economy continues to liberalise. The generals are contemplating the companies’ eventual privatisation if not total disbandment.

Within the security sector, the Myanmar Police Force is slowly developing the competencies of a professional security service focused on law and order, part of a power shift from ‘green (army) to blue (police)’. The military has even accepted a reduction in their budget allocation, not in real dollar terms but as a percentage of the national revenue (from approximately 20 per cent to 12 per cent) — though this still dwarfs other departments such as health and education.

Significantly, military concerns about allowing the new polity to evolve have relaxed, as threat perceptions of civilian opposition parties, ethnic groups and Western states have changed. The softening of these previously antagonistic relationships, furthermore, neutralises the national security narrative commonly employed to justify the military’s political involvement.

The recent appointment of General Maung Maung Ohn as the Chief Administrator of the restive Arakan State (centre of the ongoing violence between Burmans and Rohingya Muslims), though, demonstrates the potency of such a rationale reifying their political role. Feeling less threatened is an important development but does not necessarily mean that the military now views these groups as equal partners or potential political leaders.

Perhaps the greatest surprise has been the calculated opening of relations with the West and their militaries. US Undersecretary of State for Democracy, Human Rights and Labor Tom Malinowski recently met with Senior-General Min Aung Hlaing. Also, US Pacific Command Deputy Commander Lieutenant-General Crotchfield gave a lecture to the Myanmar National Defense College promoting the legitimacy and benefits of civilian rule and control of the military. These events may not convince the Tatmadaw senior leadership to change their attitudes right away, but they do demonstrate a new willingness to hold such discussions.

The military’s removal from politics is essential for a strong democratic system to take root in Myanmar. For the NLD, their focus should be on winning in the current system (despite its flaws and biases in favour of the military-supported political entities) and then on moving to change the constitutional rules of the game.

If the civilian NLD assumes power, as is likely, the military will want to retain their political position even more. So, it is expected that the 2015 elections will produce a truly hybrid civilian-military government. Such an arrangement would usher in a new era in civil–military relations, facilitating needed changes such as greater civilian competency and legitimacy in security matters, discussions on military reporting to parliament, developing pension systems for military members and eventually addressing the Tatmadaw’s history of rule.

This will take time.

It may take a new generation of military and civilian leaders, working within this new configuration, for a lasting and permanent demarcation between them to emerge. A slow and gradual reconfiguration of responsibilities and identities would be the most effective route to enact such changes and ensure the wider reform and transition process remains on track.

Adam P. MacDonald is an independent researcher based in Halifax, Canada.

Categories: Forum

Indonesia has to make hard decisions on debt

East Asia Forum - Tue, 07/22/2014 - 05:00

Author: Peter McCawley, ANU

Indonesia’s next president will need significant funds to fulfil election promises. But both candidates Joko Widodo (Jokowi) and Prabowo Subianto have expressed caution about international borrowings.

So should Indonesia undertake the risks of borrowing from overseas? There is little consensus among Indonesian policymakers. The issue is a difficult and sensitive one, but what is the right course of action?

The case for government borrowing from overseas seems straightforward and persuasive — international capital markets are awash with liquidity and interest rates are at record lows. Also, Indonesia urgently needs funds to support new investments.

But how much should Indonesia borrow? The answer, in principle, is simple. Indonesia should keep borrowing — many billions of dollars if appropriate — so long as the rate of return on investment comfortably exceeds the cost of borrowing. If, for example, the Indonesian government can borrow in international capital markets at 6 per cent per year and investments at home have a return of 10 per cent per year, then surely Indonesia should keep borrowing.

Yet a ‘fear of borrowing’ is widespread across the political and policymaking elite in Indonesia.

The basic case for international borrowings rests on several assumptions. First, that the terms of borrowing (including the costs of borrowing and other conditions) are attractive. Second, that the funds can be used well, especially by investing in good projects at home. Third, that there are no problematic financial or other worrying risks in issuing debt.

Opponents of international borrowing in Indonesia say that none of these assumptions can be relied upon. They argue that the risk to Indonesia of raising large scale borrowings overseas is just too great.

For one thing, opponents of government borrowing point to the hidden costs of international borrowings. They point to the foreign exchange rate risks — arguing that while current costs of borrowing in US dollars are quite low, uncertainty and danger will arise if there is a significant depreciation of the Indonesian rupiah. The repayments in US dollars, they point out, will soon become quite onerous and perhaps they have a point.

The Indonesian rupiah has fallen significantly in the past few years — from around Rp9800 to the US dollar in mid-2011 to around Rp12,000 in recent months. So it seems true that there are considerable foreign exchange rate risks for Indonesia in borrowing from overseas.

Also, it isn’t always clear that the borrowed funds will be used to support good projects. There is a real risk that borrowed funds will be frittered away on disappointing white elephant projects. And there is, worryingly, a marked shortage of well-prepared projects in Indonesia. Some of the projects that have been mentioned in recent years have been slow to get off the mark. There has been talk, for example, of a very ambitious Sunda Strait Bridge project to provide road and rail links across from Java to Sumatra. This project would cost at least US$20 billion   and would be by far the largest single infrastructure project ever undertaken in Indonesia. As such, it would seem to be a suitable project to finance with official borrowings from overseas. Yet so far, despite much talk and repeated presidential promises, the plans for the bridge have gone nowhere.

Another worry about international borrowings is that financial complications will arise which could ultimately drag the government into negotiations about sour international debts. Senior Indonesian policymakers point to two bitter experiences that Indonesia has had with debt reschedulings.

One was in 1975 when a major debt crisis  occurred following the Pertamina crisis. The crisis broke out when it was revealed that the state-owned oil company Pertamina had gone on an undisclosed borrowing spree in international markets. The president director of Pertamina, Dr Ibnu Sutowo, had approved the borrowings of large amounts of short-term funds. The borrowings had been used to invest in longer-term projects, but Sutowo had not foreseen any repayment problems because he had assumed that Pertamina’s short-term debts could be continually refinanced in international markets.

But when, in the wake of the 1973–74 international ‘oil shock’, international capital markets suddenly dried up, Pertamina was faced with a cash-flow crisis. Eventually the problem was solved — but not without significant pain and damage to Indonesia’s standing in the international community.

It took years for Indonesia to build up credibility again in international financial markets.

More recently, the borrowing and debt problems that contributed to the 1997–98 Asian financial crisis in Indonesia imposed huge economic costs. In the midst of the Asian financial crisis Indonesia’s GDP fell by over 10 per cent in 1998 causing widespread unemployment and leading to a sharp increase in the national poverty rate. Recovery from the crisis was slow. It was not until almost a decade later that national income per person climbed once again to the pre-crisis level.

Although the benefits to be gained from a well-designed and successful international borrowing program are large for Indonesia, the risks are large as well. It is understandable that many policymakers are cautious. They are keen to see Indonesia invest in much-needed infrastructure but they have bitter memories from the past — it’s a hard choice.

Peter McCawley is a Visiting Fellow at the Crawford School of Public Policy, The Australian National University.

Categories: Forum
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